Supreme Court Ruling Strikes a Blow to Telecom Stocks like AT&T and Verizon

On Monday, shares of telecom giants AT&T, Verizon, and Comcast fell after the Supreme Court declined to hear a challenge to a New York law that sets broadband price caps for low-income households. The law, enacted in 2021, requires internet service providers (ISPs) to offer discounted service rates to a significant portion of New York households.

As a result of the market's reaction to the decision's implications for the telecom sector, shares dropped by 3.5% for AT&T, 3.3% for Verizon, 2.5% for Comcast, and 0.5% for Charter Communications. The Supreme Court's refusal to take up the case left in place a Second Circuit Court ruling from April 2024 that upheld the New York law. This law was challenged by ISPs on the grounds that broadband is classified as Title 1 service, claiming that states do not have the authority to regulate such "information services."

The Supreme Court's decision implies that states could step in to regulate broadband pricing where the Federal Communications Commission (FCC) has not enforced regulations under the existing Title 1 classification. The telecom sector views this as a setback, given that the FCC is likely to lose its Title 2 authority to regulate prices at the federal level.

Analysts from TD Cowen suggest that the Supreme Court may reconsider state authority over broadband pricing during the 2025-26 period. This is likely to follow the final ruling from the Sixth Circuit Court expected in mid-2025, which could prevent the FCC from classifying broadband as Title 2 service.

Investors are now faced with the question of whether other states will follow New York's lead and implement similar pricing regulations. This scenario is expected to clarify in the first half of 2025, when state legislatures reconvene and potentially start to evaluate such laws. California stands out as a potential state to watch due to its history of imposing clear net neutrality requirements on ISPs.